December 16, 2016 7:27 am
For employers, payroll can be one of the most challenging aspects of running a business. Fortunately, by avoiding these ten common mistakes, you can streamline your payroll process and enjoy a simpler and more straightforward experience in the years to come.
From classifying employees incorrectly to neglecting to issue certain forms, these top ten payroll mistakes are better avoided:
While it may seem like a small detail, having incorrect employee information in your databases is a sure-fire way to watch your payroll go down in flames. As a general rule, you need to have up-to-date, current information about your employees’ full names (be mindful of married names, etc.), start and end dates at your company, birth date, hourly rate, employment period, mailing address, and tax numbers.
Having any of these things wrong in your databases can make payroll a complete nightmare.
As a general rule, the people who work at your company are either independent contractors or employees. If you’re misclassifying your employees as independent contractors you’ve got a problem. While employees have money for taxes deducted automatically from their paychecks, independent contractors are responsible for their taxes and withholdings after they’ve made $600 or more. Classifying employees correctly is one way to ensure your year-end payroll process is a breeze.
According to the IRS, you’re required to keep your payroll records for at least four years. If you don’t have these files on hand, you may be audited and find that it is hard to prove your payroll expenses.
With that in mind, keep both a digital and a paper copy of these records for at least the minimum recommended amount, if not longer.
One common yet damaging mistake that employers make is over- or under-paying taxes on payroll. With this in mind, be sure that your amounts are correct and your forms are filled out correctly before you submit your payroll forms. This can help you save money on incorrect payroll expenses and make filing easier for your company, both now and in the future.
To ensure that your payroll process goes smoothly, you must also make sure that you’re meeting critical deadlines. With this in mind, write critical deadlines on your payroll calendar, and ensure that you’re meeting deadlines to deposit payroll taxes, report payroll numbers, and more. This can help you avoid late penalties and charges.
If you do work with independent contractors, you’ll need to send out 1099s to ensure that they can complete their taxes accordingly. These forms are due by January 31st, and failing to send them out on time can result in penalties.
While payroll programs like QuickBooks are helpful payroll tools, it’s dangerous to depend on them too much. Programs make mistakes as well and having a person look over your payroll records will help catch and rectify any errors that originated with your payroll programs or entry methods.
Payroll information is confidential, and discussing it with anyone who is not in your company’s payroll department can create security breaches while also putting you at risk of potential liability. With this in mind, keep your payroll dealings and information confidential.
If you’ve paid out overtime to some employees, calculating it correctly is critical. In some cases, small businesses have even been sued by claiming that individual employees were exempt from overtime when, in fact, they were not.
With this in mind, hire a payroll professional to help you calculate your overtime pay. This will be especially important when the new overtime rule goes into effect at the beginning of 2017.
Payroll standards and best practices change frequently, and failing to adapt to them can result in fines and fees for your company. With this in mind, hire a qualified payroll specialist who understands how to ensure payroll compliance every step of the way.
While it’s true that payroll can be confusing, these ten easily avoidable payroll mistakes can make it much more challenging than it needs to be. Luckily, employers and small business owners who stay far away from these problems will have less to worry about in their payroll dealings.
This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.